The
Home Depot story provides many insights into the workings of one of
today's most successful retailers. This chapter looks at retailing and wholesaling.
In the first section, we look at the nature and importance of
retailing, major types of store and nonstore retailers, the decisions
retailers make, and the future of retailing. In the second section, we
discuss these same topics as they relate to wholesalers.

Comments by Dr. Laukamm

Add/Edit Comments

Retailing

Comments by Dr. Laukamm

Add/Edit Comments

What
is retailing? We all know that Wal-Mart, Home, and Target are
retailers, but so are Avon representatives, Amazon.com, the local
Holiday Inn, and a doctor seeing patients. Retailing
includes all the activities involved in selling products or services
directly to final consumers for their personal, nonbusiness use. Many
institutions—manufacturers, wholesalers, and retailers—do retailing.
But most retailing is done by retailers: businesses whose sales come primarily from retailing.

Comments by Dr. Laukamm

Add/Edit Comments

Although most retailing is done in retail stores, in recent years nonstore retailing
has been growing much faster than has store retailing. Nonstore
retailing includes selling to final consumers through direct mail,
catalogs, telephone, the Internet, TV home shopping shows, home and
office parties, door-to-door contact, vending machines, and other
direct-selling approaches. We discuss such direct-marketing approaches
in detail in Chapter 17. In this chapter, we focus on store retailing.

Comments by Dr. Laukamm

Add/Edit Comments

Types of Retailers

Comments by Dr. Laukamm

Add/Edit Comments

Retail
stores come in all shapes and sizes, and new retail types keep
emerging. The most important types of retail stores are described in
Table 14.1 and discussed in the following sections. They can be
classified in terms of several characteristics, including the amount of service they offer, the breadth and depth of their product lines, the relative prices they charge, and how they are organized.

Comments by Dr. Laukamm

Add/Edit Comments

Amount of Service

Comments by Dr. Laukamm

Add/Edit Comments

Different
products require different amounts of service, and customer service
preferences vary. Retailers may offer one of three levels of
service—self-service, limited service, and full service.

Comments by Dr. Laukamm

Add/Edit Comments

Self-service retailers
serve customers who are willing to perform their own
"locate-compare-select" process to save money. Self-service is the
basis of all discount operations and is typically used by sellers of
convenience goods (such as supermarkets) and nationally branded,
fast-moving shopping goods (such as Best Buy).

Comments by Dr. Laukamm

Add/Edit Comments

TABLE 14.1

Major Store Retailer Types

Specialty Stores: Carry a narrow product line with a deep assortment, such as apparel stores, sporting-goods
stores, furniture stores, florists, and bookstores. A clothing store would be a single-line store, a
men's clothing store would be a limited-line store, and a men's custom-shirt store would be a
superspecialty store. Examples: The Body Shop, Gap, The Athlete's Foot.

Department Stores: Carry several product lines—typically clothing, home furnishings, and household
goods—with each line operated as a separate department managed by specialist buyers or
merchandisers. Examples: Sears, Macy's, Marshall Field's.

Convenience Stores: Relatively small stores located near residential areas, open long hours seven days
a week, and carrying a limited line of high-turnover convenience products at slightly higher prices.
Examples: 7-Eleven, Stop-N-Go, Circle K.

Off-Price Retailers: Sell merchandise bought at less-than-regular wholesale prices and sold at less than
retail: often leftover goods, overruns, and irregulars obtained at reduced prices from manufacturers or
other retailers. These include factory outlets owned and operated by manufacturers (example: Mikasa);
independent off-price retailers owned and run by entrepreneurs or by divisions of larger retail corporations
(example: TJ Maxx); and warehouse (or wholesale) clubs selling a limited selection of brand-name
groceries, appliances, clothing, other goods at deep discounts to consumers who pay membership fees
(examples: Costco, Sam's, BJ's Wholesale Club).

Add/Edit Comments

Limited-service retailers,
such as Sears or J.C. Penney, provide more sales assistance because
they carry more shopping goods about which customers need information.
Their increased operating costs result in higher prices. In full-service retailers,
such as specialty stores and first-class department stores, salespeople
assist customers in every phase of the shopping process. Full-service
stores usually carry more specialty goods for which customers like to
be "waited on." They provide more services, resulting in much higher
operating costs, which are passed along to customers as higher prices.

Comments by Dr. Laukamm

Add/Edit Comments

Product Line

Comments by Dr. Laukamm

Add/Edit Comments

Retailers also can be classified by the length and breadth of their product assortments. Some retailers, such as specialty stores,
carry narrow product lines with deep assortments within those lines.
Today, specialty stores are flourishing. The increasing use of market
segmentation, market targeting, and product specialization has resulted
in a greater need for stores that focus on specific products and
segments.

Comments by Dr. Laukamm

Add/Edit Comments

In contrast, department stores
carry a wide variety of product lines. In recent years, department
stores have been squeezed between more focused and flexible specialty
stores on the one hand, and more efficient, lower-priced discounters on
the other. In response, many have added promotional pricing to meet the
discount threat. Others have stepped up the use of store brands and
single-brand "designer shops" to compete with specialty stores. Still
others are trying mail-order, telephone, and Web selling. Service
remains the key differentiating factor. Department stores such as
Nordstrom, Saks, Neiman Marcus, and other high-end department stores
are doing well by emphasizing high-quality service.

Comments by Dr. Laukamm

Add/Edit Comments

Supermarkets
are the most frequently shopped type of retail store. Today, however,
they are facing slow sales growth because of slower population growth
and an increase in competition from convenience stores, discount food
stores, and superstores. Supermarkets also have been hit hard by the
rapid growth of out-of-home eating.

Comments by Dr. Laukamm

Add/Edit Comments

Thus,
most supermarkets are making improvements to attract more customers. In
the battle for "share of stomachs," many large supermarkets have moved
upscale, providing from-scratch bakeries, gourmet deli counters, and
fresh seafood departments. Others are cutting costs, establishing more
efficient operations, and lowering prices in order to compete more
effectively with food discounters. Finally, a few have added Web-based
sales. Forrester Research estimates that 18 percent of the nation's
household will be good prospects for online grocery buying and that the
number buying online will increase from 4.5 million households last
year to more that 14 million by 2006.2

Comments by Dr. Laukamm

Add/Edit Comments

Convenience stores
are small stores that carry a limited line of high-turnover convenience
goods. Some 125,000 U.S. convenience stores posted sales last year of
$283 billion. More than 60 percent of convenience store revenues come
from sales of gasoline; more the 50 percent of in-store revenues are
from cigarette and beverage sales.3

Comments by Dr. Laukamm

Add/Edit Comments

In
recent years, the convenience store industry has suffered from
overcapacity as its primary market of young, blue-collar men has
shrunk. As a result, many chains are redesigning their stores to
attract female shoppers. They are shedding the image of a "truck stop"
where men go to buy beer, cigarettes, and magazines, and instead offer
fresh prepared foods and cleaner, safer environments. Many are also
applying micromarketing—tailoring each store's merchandise to the
specific needs of its surrounding neighborhood. For example, a
Stop-N-Go in an affluent neighborhood carries fresh produce, gourmet
pasta sauces, chilled Evian water, and expensive wines. Stop-N-Go
stores in Hispanic neighborhoods carry Spanish-language magazines and
other goods catering to the specific needs of Hispanic consumers.

Comments by Dr. Laukamm

Add/Edit Comments

Superstores
are much larger than regular supermarkets and offer a large assortment
of routinely purchased food products, nonfood items, and services.
Wal-Mart, Kmart, Target, and other discount retailers offer supercenters,
combination food and discount stores that emphasize
cross-merchandising. Toasters are above the fresh-baked bread, kitchen
gadgets are across from produce, and infant centers carry everything
from baby food to clothing. Supercenters are growing in the United
States at an annual rate of 25 percent, compared with a supermarket
industry growth rate of only 1 percent. Wal-Mart, which opened its
first supercenter in 1988, now has more than 1,100, capturing more than
70 percent of all supercenter volume.4

Comments by Dr. Laukamm

Add/Edit Comments

Recent years have also seen the explosive growth of superstores that are actually giant specialty stores, the so-called category killers.
They feature stores the size of airplane hangars and carry a very deep
assortment of a particular line with a knowledgeable staff. Category
killers are prevalent in a wide range of categories, including books,
baby gear, toys, electronics, home improvement products, linens and
towels, party goods, sporting goods, even pet supplies. Another
superstore variation, the hypermarket, is a huge superstore, perhaps as large as six
football fields. Although hypermarkets have been very successful in
Europe and other world markets, they have met with little success in
the United States.

Comments by Dr. Laukamm

Add/Edit Comments

Finally,
for some retailers, the product line is actually a service. Service
retailers include hotels and motels, banks, airlines, colleges,
hospitals, movie theaters, tennis clubs, bowling alleys, restaurants,
repair services, hair care shops, and dry cleaners. Service retailers
in the United States are growing faster than product retailers.

Comments by Dr. Laukamm

Add/Edit Comments

Relative Prices

Comments by Dr. Laukamm

Add/Edit Comments

Retailers
can also be classified according to the prices they charge (see Table
14.1). Most retailers charge regular prices and offer normal-quality
goods and customer service. Others offer higher-quality goods and
service at higher prices. The retailers that feature low prices are
discount stores and "off-price" retailers.

Comments by Dr. Laukamm

Add/Edit Comments

DISCOUNT STORES A discount store
sells standard merchandise at lower prices by accepting lower margins
and selling higher volume. The early discount stores cut expenses by
offering few services and operating in warehouselike facilities in
low-rent, heavily traveled districts. In recent years, facing intense
competition from other discounters and department stores, many discount
retailers have "traded up." They have improved décor, added new lines
and services, and expanding regionally and nationally, leading to
higher costs and prices.

Comments by Dr. Laukamm

Add/Edit Comments

OFF-PRICE RETAILERS When the major discount stores traded up, a new wave of off-price retailers
moved in to fill the low-price, high-volume gap. Ordinary discounters
buy at regular wholesale prices and accept lower margins to keep prices
down. In contrast, off-price retailers buy at less-than-regular
wholesale prices and charge consumers less than retail. Off-price
retailers can be found in all areas, from food, clothing, and
electronics to no-frills banking and discount brokerages.

Comments by Dr. Laukamm

Add/Edit Comments

The three main types of off-price retailers are independents, factory outlets, and warehouse clubs. Independent off-price retailers
either are owned and run by entrepreneurs or are divisions of larger
retail corporations. Although many off-price operations are run by
smaller independents, most large off-price retailer operations are
owned by bigger retail chains. Examples include store retailers such as
TJ Maxx and Marshall's, owned by TJX Companies, and Web sellers such as
RetailExchange.com, Redtag.com, and CloseOutNow.com.

Comments by Dr. Laukamm

Add/Edit Comments

Factory outlets—such
as the Manhattan's Brand Name Fashion Outlet and the factory outlets of
Liz Claiborne, Carters, Levi Strauss, and other manufacturers—sometimes
group together in factory outlet malls and value-retail centers,
where dozens of outlet stores offer prices as low as 50 percent below
retail on a wide range of items. Whereas outlet malls consist primarily
of manufacturers' outlets, value-retail centers combine manufacturers'
outlets with off-price retail stores and department store clearance
outlets. Factory outlet malls have become one of the hottest growth
areas in retailing.

Comments by Dr. Laukamm

Add/Edit Comments

The
malls now are moving upscale—and even dropping "factory" from their
descriptions—narrowing the gap between factory outlet and more
traditional forms of retailers. As the gap narrows, the discounts
offered by outlets are getting smaller. However, a growing number of
outlet malls now feature brands such as Coach, Polo Ralph Lauren, Dolce
& Gabbana, Giorgio Armani, Gucci, and Versace, causing department
stores to protest to the manufacturers of these brands. Given their
higher costs, the department stores have to charge more than the
off-price outlets. Manufacturers counter that they send last year's
merchandise and seconds to the factory outlet malls, not the new
merchandise that they supply to the department stores. The malls are
also located far from urban areas, making travel to them more
difficult. Still, the department stores are concerned about the growing
number of shoppers willing to make weekend trips to stock up on branded
merchandise at substantial savings.5

Comments by Dr. Laukamm

Add/Edit Comments

Warehouse clubs (or wholesale clubs or membership warehouses),
such as Sam's Club, Costco, and BJ's, operate in huge, drafty,
warehouselike facilities and offer few frills. Customers themselves
must wrestle furniture, heavy appliances, and other large items to the
checkout line. Such clubs make no home deliveries and often accept no
credit cards. However, they do offer ultralow prices and surprise deals
on selected branded merchandise. Whereas a weakening economy has slowed
the growth of many traditional retailers, warehouse club sales have
soared recently. These days, "consumers are laser-beam-focused on
finding the best value," says an industry analyst, "and the absolute
best value is at a club."6

Comments by Dr. Laukamm

Add/Edit Comments

Organizational Approach

Comments by Dr. Laukamm

Add/Edit Comments

Although
many retail stores are independently owned, an increasing number are
banding together under some form of corporate or contractual
organization. The major types of retail organizations—corporate chains, voluntary chains, retailer cooperatives, franchise organizations, and merchandising conglomerates—are described in Table 14.2.

Comments by Dr. Laukamm

Add/Edit Comments

TABLE 14.2

Major Types of Retail Organizations

Type

Description

Examples

Corporate chain stores

Two or
more outlets that are commonly owned and controlled, employ central
buying and merchandising, and sell similar lines of merchandise.
Corporate chains appear in all types of retailing, but they are
strongest in department stores, variety
stores, food stores, drugstores,
shoe stores, and women's clothing stores.

Groups of independent retailers who set up a central buying organization and conduct joint promotion efforts.

Associated Grocers (groceries), Ace (hardware)

Franchise organizations

Contractual association between a franchiser (a manufacturer, wholesales, or service organization) and franchisees
(independent businesspeople who buy the right to own and operate one or
more units in the franchise system). Franchise organizations are
normally based on some unique product, service, or method of doing
business, or on a trade name or patent, or on goodwill that the
franchiser had developed.

McDonald's, Subway, Pizza Hut, Jiffy Lube, Meineke Mufflers, 7-Eleven

Merchandising conglomerates

A
free-form corporation that combines several diversified retailing lines
and forms under central ownership, along with some integration of their
distribution and management functions.

Target Corporation

Comments by Dr. Laukamm

Add/Edit Comments

Chain stores
are two or more outlets that are commonly owned and controlled. They
have many advantages over independents. Their size allows them to buy
in large quantities at lower prices and gain promotional economies.
They can hire specialists to deal with areas such as pricing,
promotion, merchandising, inventory control, and sales forecasting.

Comments by Dr. Laukamm

Add/Edit Comments

The
great success of corporate chains caused many independents to band
together in one of two forms of contractual associations. One is the voluntary chain—a
wholesaler-sponsored group of independent retailers that engages in
group buying and common merchandising—which we discussed in Chapter 11.
Examples include Western Auto and Do it Best hardwares. The other form
of contractual association is the retailer cooperative—a
group of independent retailers that bands together to set up a jointly
owned, central wholesale operation and conducts joint merchandising and
promotion efforts. Examples are Associated Grocers and Ace Hardware.
These organizations give independents the buying and promotion
economies they need to meet the prices of corporate chains.

Comments by Dr. Laukamm

Add/Edit Comments

Another form of contractual retail organization is a franchise.
The main difference between franchise organizations and other
contractual systems (voluntary chains and retail cooperatives) is that
franchise systems are normally based on some unique product or service;
on a method of doing business; or on the trade name, goodwill, or
patent that the franchiser has developed. Franchising has been
prominent in fast foods, video stores, health and fitness centers,
haircutting, auto rentals, motels, travel agencies, real estate, and
dozens of other product and service areas.

Comments by Dr. Laukamm

Add/Edit Comments

Once
considered upstarts among independent businesses, franchises now
command 35 percent of all retail sales in the United States. These
days, it's nearly impossible to stroll down a city block or drive on a
suburban street without seeing a McDonald's, Subway, Jiffy Lube, or
Holiday Inn. One of the best-known and most successful franchisers,
McDonald's, now has 30,000 stores in 120 countries serving more than 46
million customers a day and racking up more than $40 billion in
systemwide sales. More than 70 percent of McDonald's restaurants
worldwide are owned and operated by franchisees. Gaining fast is Subway
Sandwiches and Salads, one of the fastest-growing franchises, with more
than 16,000 shops in 74 countries, including some 13,250 in the United
States. Franchising is even moving into new areas such as education.
For example, LearnRight Corporation franchises its methods for teaching
students thinking skills.7

Comments by Dr. Laukamm

Add/Edit Comments

Finally, merchandising conglomerates
are corporations that combine several different retailing forms under
central ownership. An example is Target Corporation, which operates
Marshall Fields (upscale department stores), Target (upscale discount
stores), Mervyn's (middle-market apparel and home soft goods), and
Target.direct (online retailing and direct marketing). Diversified
retailing, similar to a multibranding strategy, provides superior
management systems and economies that benefit all the separate retail
operations, and is likely to increase.

Comments by Dr. Laukamm

Add/Edit Comments

Retailer Marketing Decisions

Comments by Dr. Laukamm

Add/Edit Comments

Retailers
are always searching for new marketing strategies to attract and hold
customers. In the past, retailers attracted customers with unique
products, more or better services than their competitors offered, or
credit cards. Today, national-brand manufacturers, in their drive for
volume, have placed their branded goods everywhere. National brands are
found not only in department stores but also in mass-merchandise
discount stores, off-price discount stores, and on the Web. As a
result, retail assortments are looking more and more alike.

Comments by Dr. Laukamm

Add/Edit Comments

Service
differentiation among retailers has also eroded. Many department stores
have trimmed their services, whereas discounters have increased theirs.
Customers have become smarter and more price sensitive. They see no
reason to pay more for identical brands, especially when service
differences are shrinking. For all these reasons, many retailers today
are rethinking their marketing strategies.

Comments by Dr. Laukamm

Add/Edit Comments

As shown in Figure 14.1, retailers face major marketing decisions about their target market and positioning, product assortment and services, price, promotion, and place.

Comments by Dr. Laukamm

Add/Edit Comments

Target Market and Positioning Decision

Comments by Dr. Laukamm

Add/Edit Comments

Retailers
first must define their target markets and then decide how they will
position themselves in these markets. Should the store focus on
upscale, midscale, or downscale shoppers? Do target shoppers want
variety, depth of assortment, convenience, or low prices? Until they
define and profile their markets, retailers cannot make consistent
decisions about product assortment, services, pricing, advertising,
store décor, or any of the other decisions that must support their
positions.

Comments by Dr. Laukamm

Add/Edit Comments

ACTIVEFIGURE 14.1

Retailer marketing decisions

Comments by Dr. Laukamm

Add/Edit Comments

Too
many retailers fail to define their target markets and positions
clearly. They try to have "something for everyone" and end up
satisfying no market well. In contrast, successful retailers define
their target markets well and position themselves strongly. Even large
stores such as Wal-Mart, Sears, and Target must define their major
target markets in order to design effective marketing strategies. In
fact, in recent years, thanks to strong targeting and positioning,
Wal-Mart has become not just the world's largest retailer, but the
world's largest company

Comments by Dr. Laukamm

Add/Edit Comments

How
can any discounter hope to compete with the likes of huge and
dominating Wal-Mart? Again, the answer is good targeting and
positioning. For example, rather than facing Wal-Mart head-on, Target
aims for a seemingly oxymoronic niche—the "upscale discount" segment.

Comments by Dr. Laukamm

Add/Edit Comments

Target—or Tar-zhay
as many fans call it—has developed its own distinct targeting and
positioning. "Going to Target is a cool experience, and everybody now
considers it cool to save money," says one retailing consultant. "On
the other hand, is it cool to save at Kmart, at Wal-Mart? I don't think
so." Target isn't Wal-Mart, the giant that wooed suburbia with its
acres of guns and gummy bears. And it definitely isn't Kmart, which
still seems downscale despite its Martha Stewart tea-towel sets.
Target's aim is more subtle: Stick to low prices, of course, but rise
above the discount fray with upmarket style and design and higher-grade
service. Target's ability to position itself as an upscale alternative
really separates it from its mass-merchant peers. "We have a very clear
strategy and a very clear brand," says Target vice chairman Jerry
Storch. And it's all based on a clearly defined customer. Target's
"expect more, pay less" positioning appeals to more-affluent consumers.
Its average customer is typically female, 40, and college educated,
with a household income approaching $50,000. On average, Target
customers spend $40 a visit, almost twice that of other mass merchants.
"The higher-income, better educated guest is in our stores," says
Storch. "As your income rises, you love Target more and more." Target's
upscale discount niche has helped insulate it from giant competitor
Wal-Mart. "Wal-Mart is the greatest retailer that ever was," says
Storch. "Very few have been able to compete with them and survive." Now
1,100 stores strong, more than survive, Target has thrived. "People
used to say, ‘Ooh, a Nordstrom's coming to town,'" says the consultant.
"Those same people now say, ‘Ooh, we're getting a Target!'"8

Comments by Dr. Laukamm

Add/Edit Comments

Product Assortment and Services Decision

Comments by Dr. Laukamm

Add/Edit Comments

Retailers must decide on three major product variables: product assortment, services mix, and store atmosphere.

Comments by Dr. Laukamm

Add/Edit Comments

The retailer's product assortment
should differentiate the retailer while matching target shoppers'
expectations. One strategy is to offer merchandise that no other
competitor carries, such as private brands or national brands on which
it holds exclusives. For example, Saks gets exclusive rights to carry a
well-known designer's labels. The retailer can feature blockbuster
merchandising events—Bloomingdale's is known for running spectacular
shows featuring goods from a certain country, such as India or China.
Or the retailer can offer surprise merchandise, as when Costco offers
surprise assortments of seconds, overstocks, and closeouts. Finally,
the retailer can differentiate itself by offering a highly targeted
product assortment—Lane Bryant carries goods in larger sizes;
Brookstone offers an unusual assortment of gadgets in what amounts to
an adult toy store.

Comments by Dr. Laukamm

Add/Edit Comments

Target—or Tar-zhay
as many fans call it—has developed its own distinct positioning as an
"upscale discounter." As this ad suggests, Target is not your usual
discount store.

Comments by Dr. Laukamm

Add/Edit Comments

The services mix
can also help set one retailer apart from another. For example, some
retailers invite customers to ask questions or consult service
representatives in person or via phone or keyboard. Home Depot offers a
diverse mix of services to do-it-yourselfers, from "how-to" classes to
a proprietary credit card.

Comments by Dr. Laukamm

Add/Edit Comments

The store's atmosphere
is another element in the reseller's product arsenal. Every store has a
physical layout that makes moving around in it either hard or easy.
Each store has a "feel"; one store is cluttered, another cheerful, a
third plush, a fourth somber. The store must plan an atmosphere that
suits the target market and moves customers to buy. For example,
outdoor equipment retailer REI practices "experiential retailing":
Consumers can try out climbing equipment on a huge wall in the store,
and they can test Gore-Tex raincoats by going under a simulated rain
shower. And many retailers add fragrances in their stores to stimulate
certain moods in shoppers. London's Heathrow Airport sprays the scent
of pine needles because it evokes the sense of holidays and weekend
walks. Automobile dealers will spray a "leather" scent in used cars to
make them smell "new."

Comments by Dr. Laukamm

Add/Edit Comments

Increasingly,
retailers are turning their stores into theaters that transport
customers into unusual, exciting shopping environments. For example,
Barnes & Noble uses atmospherics to turn shopping for books into
entertainment. It has found that "to consumers, shopping is a social
activity. They do it to mingle with others in a prosperous-feeling
crowd, to see what's new, to enjoy the theatrical dazzle of the
display, to treat themselves to something interesting or unexpected."
Thus, Barnes & Noble stores are designed with "enough woody,
traditional, soft-colored library to please book lovers; enough
sophisticated modern architecture and graphics, sweeping vistas, and
stylish displays to satisfy fans of the theater of consumption. And for
everyone, plenty of space, where they can meet other people and feel at
home. . . . [Customers can sip a cup of Starbucks coffee and] settle in
at heavy chairs and tables to browse through piles of books; they fill
the cafes [designed] to increase the festivities. . . ." As one Barnes
& Noble executive notes: "The feel-good part of the store, the
quality-of-life contribution, is a big part of the success."9

Comments by Dr. Laukamm

Add/Edit Comments

Perhaps
the most dramatic conversion of stores into theater is the Mall of
America near Minneapolis. Containing more than 520 specialty stores and
49 restaurants, the mall is a veritable playground. Under a single
roof, it shelters a seven-acre Camp Snoopy amusement park featuring 25
rides and attractions, an ice-skating rink, an Underwater World
featuring hundreds of marine specimens and a dolphin show, and a
two-story miniature golf course. One of the stores, Oshman Supersports
USA, features a basketball court, a boxing gym, a baseball batting
cage, a 50-foot archery range, and a simulated ski slope.10

Comments by Dr. Laukamm

Add/Edit Comments

All
of this confirms that retail stores are much more than simply
assortments of goods. They are environments to be experienced by the
people who shop in them. Store atmospheres offer a powerful tool by
which retailers can differentiate their stores from those of
competitors.

Comments by Dr. Laukamm

Add/Edit Comments

Price Decision

Comments by Dr. Laukamm

Add/Edit Comments

A
retailer's price policy must fit its target market and positioning,
product and service assortment, and competition. All retailers would
like to charge high markups and achieve high volume, but the two seldom
go together. Most retailers seek either high markups on lower volume (most specialty stores) or low markups on higher volume (mass merchandisers and discount stores).

Comments by Dr. Laukamm

Add/Edit Comments

Thus,
Bijan's boutique on Rodeo Drive in Beverly Hills sells $375 silk ties
and $19,000 ostrich-skin vests. Its "by appointment only" policy is
designed to make its wealthy, high-profile clients comfortable with
these prices. (Says Mr. Bijan, "If a man is going to spend $400,000 on
his visit, don't you think it's only fair that he have my full
attention?")11
Bijan's sells a low volume but makes hefty profits on each sale. At the
other extreme, T.J. Maxx sells brand-name clothing at discount prices,
settling for a lower margin on each sale but selling at a much higher
volume.

Comments by Dr. Laukamm

Add/Edit Comments

Promotion Decision

Comments by Dr. Laukamm

Add/Edit Comments

Retailers
use any or all of the promotion tools—advertising, personal selling,
sales promotion, public relations, and direct marketing—to reach
consumers. They advertise in newspapers, magazines, radio, television,
and on the Internet. Advertising may be supported by newspaper inserts
and direct mail. Personal selling requires careful training of
salespeople in how to greet customers, meet their needs, and handle
their complaints. Sales promotions may include in-store demonstrations,
displays, contests, and visiting celebrities. Public relations
activities, such as press conferences and speeches, store openings,
special events, newsletters, magazines, and public service activities,
are always available to retailers. Most retailers have also set up Web
sites, offering customers information and other features and often
selling merchandise directly.

Comments by Dr. Laukamm

Add/Edit Comments

Place Decision

Comments by Dr. Laukamm

Add/Edit Comments

Retailers often point to three critical factors in retailing success: location, location, and location!
It's very important that retailers select locations that are accessible
to the target market in areas that are consistent with the retailer's
positioning. Small retailers may have to settle for whatever locations
they can find or afford. Large retailers, however, usually employ
specialists who select locations using advanced methods.

Comments by Dr. Laukamm

Add/Edit Comments

Two
of the savviest location experts in recent years have been the
off-price retailer TJ Maxx and toy-store giant Toys "R" Us. Both put
the majority of their new locations in rapidly growing areas where the
population closely matches their customer base. The undisputed winner
in the "place race" has been Wal-Mart, whose strategy of being the
first mass merchandiser to locate in small and rural markets was one of
the key factors in its phenomenal early success.

Comments by Dr. Laukamm

Add/Edit Comments

Most
stores today cluster together to increase their customer pulling power
and to give consumers the convenience of one-stop shopping. Central business districts
were the main form of retail cluster until the 1950s. Every large city
and town had a central business district with department stores,
specialty stores, banks, and movie theaters. When people began to move
to the suburbs, however, these central business districts, with their
traffic, parking, and crime problems, began to lose business. Downtown
merchants opened branches in suburban shopping centers, and the decline
of the central business districts continued. In recent years, many
cities have joined with merchants to try to revive downtown shopping
areas by building malls and providing underground parking.

Comments by Dr. Laukamm

Add/Edit Comments

A shopping center is a group of retail businesses planned, developed, owned, and managed as a unit. A regional shopping center, or regional shopping mall,
the largest and most dramatic shopping center, contains from 40 to over
200 stores. It is like a covered mini-downtown and attracts customers
from a wide area. A community shopping center contains
between 15 and 40 retail stores. It normally contains a branch of a
department store or variety store, a supermarket, specialty stores,
professional offices, and sometimes a bank. Most shopping centers are neighborhood shopping centers or strip malls
that generally contain between 5 and 15 stores. They are close and
convenient for consumers. They usually contain a supermarket, perhaps a
discount store, and several service stores—dry cleaner, self-service
laundry, drugstore, video-rental outlet, barber or beauty shop,
hardware store, or other stores.

Comments by Dr. Laukamm

Add/Edit Comments

A recent addition to the shopping center scene is the so-called power center.
These huge unenclosed shopping centers consist of a long strip of
retail stores, including large, freestanding anchors such as Wal-Mart,
Home Depot, Best Buy, Michaels, OfficeMax, and CompUSA. Each store has
its own entrance with parking directly in front for shoppers who wish
to visit only one store. Power centers have increased rapidly during
the past few years to challenge traditional indoor malls.

Comments by Dr. Laukamm

Add/Edit Comments

Combined,
all shopping centers now account for about one-third of all retail
sales. The average American makes 3.2 trips to the mall per month,
shopping for an average of 75 minutes per trip and spending about $71.
However, many experts suggest that America is now "over-malled." There
are now 20 square feet of retail space per person in the United States,
up from 15 square feet in 1986. During the 1990s, shopping space grew
at about twice the rate of population growth. As a result, as many as
20 percent of America's regional malls are in danger of going out of
business. There "is a glut of retail space," says one retail analyst.
"There's going to have to be a shakeout," concludes another.12

Comments by Dr. Laukamm

Add/Edit Comments

Thus,
despite the recent development of many new "megamalls," such as the
spectacular Mall of America, the current trend is toward value-oriented
outlet malls and power centers on the one hand, and smaller malls on
the other. Many shoppers now prefer to shop at "lifestyle centers,"
smaller malls with upscale stores, convenient locations, and expensive
atmospheres. "Think of lifestyle centers as part Main Street and part
Fifth Avenue," comments one industry observer. "The idea is to combine
the hominess and community of an old-time village square with the
cachet of fashionable urban stores; the smell and feel of a
neighborhood park with the brute convenience of a strip center."13

Comments by Dr. Laukamm

Add/Edit Comments

Shopping
centers: The spectacular Mall of America contains more than 520
specialty stores, 49 restaurants, a 7-acre indoor theme park, an
Underwater World featuring hundreds of marine specimens and a dolphin
show, and a two-story miniature golf course.

Comments by Dr. Laukamm

Add/Edit Comments

The Future of Retailing

Comments by Dr. Laukamm

Add/Edit Comments

Retailers
operate in a harsh and fast-changing environment, which offers threats
as well as opportunities. For example, the industry suffers from
chronic overcapacity, resulting in fierce competition for customer
dollars. Consumer demographics, lifestyles, and shopping patterns are
changing rapidly, as are retailing technologies. To be successful,
then, retailers will have to choose target segments carefully and
position themselves strongly. They will have to take the following
retailing developments into account as they plan and execute their
competitive strategies.

Comments by Dr. Laukamm

Add/Edit Comments

New Retail Forms and Shortening Retail Life Cycles

Comments by Dr. Laukamm

Add/Edit Comments

New
retail forms continue to emerge to meet new situations and consumer
needs, but the life cycle of new retail forms is getting shorter.
Department stores took about 100 years to reach the mature stage of the
life cycle; more recent forms, such as warehouse stores, reached
maturity in about 10 years. In such an environment, seemingly solid
retail positions can crumble quickly. Of the top 10 discount retailers
in 1962 (the year that Wal-Mart and Kmart began), not one still exists
today.

Comments by Dr. Laukamm

Add/Edit Comments

Consider
the Price Club, the original warehouse store chain. When Sol Price
opened his first warehouse store outside San Diego in 1976, he launched
a retailing revolution. Selling everything from tires and office
supplies to five-pound tubs of peanut butter at superlow prices, his
store chain was generating $2.6 billion a year in sales within 10
years. But Price refused to expand beyond its California base. And as
the industry quickly matured, Price ran headlong into wholesale clubs
run by such retail giants as Wal-Mart and Kmart. Only 17 years later,
in a stunning reversal of fortune, a faltering Price sold out to
competitor Costco. Price's rapid rise and fall "serves as a stark
reminder to mass-market retailers that past success means little in a
fiercely competitive and rapidly changing industry."14 Thus, retailers can no longer sit back with a successful formula. To remain successful, they must keep adapting.

Comments by Dr. Laukamm

Add/Edit Comments

Many retailing innovations are partially explained by the wheel-of-retailing concept.15
According to this concept, many new types of retailing forms begin as
low-margin, low-price, low-status operations. They challenge
established retailers that have become "fat" by letting their costs and
margins increase. The new retailers' success leads them to upgrade
their facilities and offer more services. In turn, their costs
increase, forcing them to increase their prices. Eventually, the new
retailers become like the conventional retailers they replaced. The
cycle begins again when still newer types of retailers evolve with
lower costs and prices. The wheel-of-retailing concept seems to explain
the initial success and later troubles of department stores,
supermarkets, and discount stores, and the recent success of off-price
retailers.

Comments by Dr. Laukamm

Add/Edit Comments

Growth of Nonstore Retailing

Comments by Dr. Laukamm

Add/Edit Comments

Although
most retailing still takes place the old-fashioned way across
countertops in stores, consumers now have an array of alternatives,
including mail-order, television, phone, and online shopping .
Americans are increasingly avoiding the hassles and crowds at malls by
doing more of their shopping by phone or computer. Although such
retailing advances may threaten some traditional retailers, they offer
exciting opportunities for others. Most store retailers have now
developed direct retailing channels. In fact, more online retailing is
conducted by "click-and-brick" retailers than by "click-only"
retailers. For example, office-supply retailer Office Depot is now the
world's biggest online retailer after Amazon.com.16

Comments by Dr. Laukamm

Add/Edit Comments

Retail Convergence

Comments by Dr. Laukamm

Add/Edit Comments

Today's
retailers are increasingly selling the same products at the same prices
to the same consumers in competition with a wider variety of other
retailers. For example, any consumer can buy CDs at about the same
price from any or all of a dozen different types of retailers—specialty
music stores, discount music stores, electronics superstores, general
merchandise discount stores, video-rental outlets, and any of dozens of
Web sites. You can buy books at outlets ranging from independent local
bookstores to discount stores such as Wal-Mart, superstores such as
Barnes & Noble or Borders, or Web sites such as Amazon.com. And
when it comes to brand-name appliances, department stores, discount
stores, off-price retailers, electronics superstores, and a slew of Web
sites all compete for the same customers.

Comments by Dr. Laukamm

Add/Edit Comments

This merging of consumers, products, prices, and retailers is called retail convergence:

Comments by Dr. Laukamm

Add/Edit Comments

Retail
convergence is the coming together of shoppers, goods, and prices.
Customers of all income levels are shopping at the same stores, often
for the same goods. Old distinctions such as discount store, specialty
store, and department store are losing significance: The successful
store must match a host of rivals on selection, service, and price.

The American consumer's road map for where products can be found has
shifted from a segmented approach to a consolidation that is almost a
throwback to the 1800s, when a general store was the place to shop for
everything from coffee to a coffeepot. In the 1900s, shoppers migrated
from the Sears catalog to the department store, and then to the
shopping mall and specialty stores. A few years ago, the coffeepot
customer may have gone to Williams-Sonoma or even Starbucks. Today, it
could be Target or Wal-Mart.

Where you go for what you want—that has created the biggest
challenge facing retailers. Consider fashion. Once the exclusive domain
of the wealthy, fashion now moves quickly from the runways of New York
and Paris to retailers at all levels. Ralph Lauren sells in department
stores and in the Marshall's at the strip mall. Designer Stephen
Sprouse, fresh off a limited edition of Louis Vuitton handbags and
luggage, has designed a summer line of clothing and other products for
Target.17

Comments by Dr. Laukamm

Add/Edit Comments

Such
convergence means greater competition for retailers and greater
difficulty in differentiating offerings. The competition between chain
superstores and smaller, independently owned stores has become
particularly heated. Because of their bulk-buying power and high sales
volume, chains can buy at lower costs and thrive on smaller margins.
The arrival of a superstore can quickly force nearby independents out
of business. For example, the decision by electronics superstore Best
Buy to sell CDs as loss leaders at rock-bottom prices pushed a number
of specialty record store chains into bankruptcy. And Wal-Mart has been
accused of destroying independents in countless small towns around the
country.

Comments by Dr. Laukamm

Add/Edit Comments

Yet
the news is not all bad for smaller companies. Many small, independent
retailers are thriving. They are finding that sheer size and marketing
muscle are often no match for the personal touch small stores can
provide or the specialty niches that small stores fill for a devoted
customer base.

Comments by Dr. Laukamm

Add/Edit Comments

The Rise of Megaretailers

Comments by Dr. Laukamm

Add/Edit Comments

The
rise of huge mass merchandisers and specialty superstores, the
formation of vertical marketing systems and buying alliances, and a
rash of retail mergers and acquisitions have created a core of
superpower megaretailers. Through their superior information systems
and buying power, these giant retailers are able to offer better
merchandise selections, good service, and strong price savings to
consumers. As a result, they grow even larger by squeezing out their
smaller, weaker competitors.

Comments by Dr. Laukamm

Add/Edit Comments

The
megaretailers are also shifting the balance of power between retailers
and producers. A relative handful of retailers now controls access to
enormous numbers of consumers, giving them the upper hand in their
dealings with manufacturers. For example, in the United States,
Wal-Mart's revenues are more than five times those of Procter &
Gamble, and Wal-Mart generates more than 20 percent of P&G's
revenues. Wal-Mart can, and often does, use this power to wring
concessions from P&G and other suppliers.18

Add/Edit Comments

Perhaps
the most startling advances in retailing technology concern the ways in
which today's retailers are connecting with customers:

Comments by Dr. Laukamm

Add/Edit Comments

In
the past, life was simple. Retailers connected with their customers
through stores, through their salespeople, through the brands and
packages they sold, and through direct mail and advertising in the mass
media. But today, life is more complex. There are dozens of new ways to
attract and engage consumers. . . . Indeed, even if one omits the
obvious—the Web—retailers are still surrounded by technical innovations
that promise to redefine the way they and manufacturers interact with
customers. Consider, as just a sampling, touch-screen kiosks,
electronic shelf labels and signs, handheld shopping assistants, smart
cards, self-scanning systems, virtual reality displays, and intelligent
agents. So, if we ask the question, Will technology change the way
[retailers] interface with customers in the future? the answer has got
to be yes.19

Comments by Dr. Laukamm

Add/Edit Comments

Global Expansion of Major Retailers

Comments by Dr. Laukamm

Add/Edit Comments

Retailers
with unique formats and strong brand positioning are increasingly
moving into other countries. Many are expanding internationally to
escape mature and saturated home markets. Over the years, several giant
U.S. retailers—McDonald's, Gap, Toys "R" Us—have become globally
prominent as a result of their great marketing prowess. Others, such as
Wal-Mart and Kmart, are rapidly establishing a global presence.
Wal-Mart, which now operates more than 1,200 stores in nine countries
abroad, sees exciting global potential. Its international division last
year racked up sales of more than $35 billion, an increase of 11
percent over the previous year. Here's what happened when it opened two
new stores in Shenzhen, China:

Comments by Dr. Laukamm

Add/Edit Comments

[Customers
came] by the hundreds of thousands—up to 175,000 on Saturdays alone—to
China's first Wal-Mart Supercenter and Sam's Club. They broke the
display glass to snatch out chickens at one store and carted off all
the big-screen TVs before the other store had been open an hour. The
two outlets . . . were packed on Day One and have been bustling ever
since.20

Comments by Dr. Laukamm

Add/Edit Comments

However,
U.S retailers are still significantly behind Europe and Asia when it
comes to global expansion. Only 18 percent of the top U.S. retailers
operate globally, compared to 40 percent of European retailers and 31
percent of Asian retailers. Among foreign retailers that have gone
global are France's Carrefour, Britain's Marks and Spencer, Italy's
Benetton, Sweden's IKEA home furnishings stores, and Japan's Yaohan
supermarkets.21

Comments by Dr. Laukamm

Add/Edit Comments

Marks
and Spencer, which started out as a penny bazaar in 1884, grew into a
chain of variety stores over the decades and now has a thriving string
of 150 franchised stores around the world, which sell mainly its
private-label clothes, including Brooks Brothers. It also runs a major
food business. IKEA's well-constructed but fairly inexpensive furniture
has proven very popular in the United States, where shoppers often
spend an entire day in an IKEA store. And French discount retailer
Carrefour, the world's second largest retailer after Wal-Mart, has
embarked on an aggressive mission to extend its role as a leading
international retailer:

Comments by Dr. Laukamm

Add/Edit Comments

Carrefour
now operates more than 5,300 discount stores in 30 countries in Europe,
Asia, and the Americas, including 657 hypermarkets. By purchasing or
merging with a variety of retailers, Carrefour has accelerated its hold
over the European market, where it now claims retail dominance in four
leading markets: France, Spain, Belgium, and Greece; it's the number
two retailer in Italy. But one of the retailer's greatest strengths is
its market position outside of France and Europe. In South America, for
instance, Carrefour is the market leader in Brazil and Argentina, where
it operates more than 300 stores. By comparison, Wal-Mart has only 25
units in those two countries. In China, the land of more than a billion
consumers, Carrefour operates 22 hypermarkets to Wal-Mart's five
supercenters and one Sam's Club. In the Pacific Rim, excluding China,
Carrefour operates 33 hypermarkets in five countries to Wal-Mart's five
units in South Korea alone. Carrefour is also on track to beat the
competition into the Japanese market, the world's second largest nation
in terms of consumption. In the all-important emerging markets of
China, South America, and the Pacific Rim, Carrefour outpaces Wal-Mart
five-to-one in actual revenue. In short, Carrefour is bounding ahead of
Wal-Mart in most markets outside North America. The only question: Can
the French titan hold its lead? While no one retailer can rightly claim
to be in the same league with Wal-Mart as an overall retail presence,
Carrefour stands a better chance than most to dominate global retailing.22

Comments by Dr. Laukamm

Add/Edit Comments

Retail Stores as "Communities" or "Hangouts"

Comments by Dr. Laukamm

Add/Edit Comments

With
the rise in the number of people living alone, working at home, or
living in isolated and sprawling suburbs, there has been a resurgence
of establishments that, regardless of the product or service they
offer, also provide a place for people to get together. These places
include cafes, tea shops, juice bars, bookshops, superstores,
children's play spaces, brew pubs, and urban greenmarkets. Brew pubs
such as New York's Zip City Brewing and Seattle's Trolleyman Pub (run
by Red Hook Brewery) offer tastings and a place to pass the time. And
today's bookstores have become part bookstore, part library, and part
living room.

Comments by Dr. Laukamm

Add/Edit Comments

Welcome
to today's bookstore. The one featuring not only shelves and cash
registers but also cushy chairs and coffee bars. It's where
backpack-toting high school students come to do homework, where
retirees thumb through the gardening books, and parents read aloud to
their toddlers. If no one actually buys books, that's just fine, say
bookstore owners and managers. They're offering something grander than
ink and paper, anyway. They're selling comfort, relaxation, community.23

Comments by Dr. Laukamm

Add/Edit Comments

Brick-and-mortar retailers are not the only ones creating community. Others have also built virtual communities on the Internet.

Comments by Dr. Laukamm

Add/Edit Comments

Sony
Computer Entertainment America (SCEA) actively builds community among
its Playstation®2 customers. Its recent Playstation.com campaign
created message boards where its game players could post messages to
one another. The boards are incredibly active, discussing techie topics
but also providing the opportunity for members, fiercely competitive
and opinionated, to vote on lifestyle issues, such as music and
personal taste, no matter how trivial. Although SCEA is laissez-faire
about the boards and does not feed them messages, the company sees the
value in having its customers' adamant conversations occur directly on
its site. "Our customers are our evangelists. They are a very vocal and
loyal fan base," says an SCEA spokesperson. "There are things we can
learn from them."24